What are intangible assets?

Businesses can have many different kinds of assets. They’re all treated slightly differently, but they all count toward your business’ value, so understanding them is important for a healthy business. 

In this guide, we’ll be talking about intangible assets and assets in general. Specifically, we’ll be covering:

• What are assets?
• Examples of intangible assets
• How to value intangible assets

An asset is a resource owned by a business that can be used to make money. Because they can produce income, they have a cash value that counts toward the total value of a business. 

Assets can fall into several different categories. They are not exclusive, some can fall into more than one, but we can generally split them into these categories: 

• Liquid assets
• Current assets
• Fixed assets
• Current assets
• Intangible assets

The categories are largely determined by what they’re used for and how quickly they can be turned into actual cash. 

A liquid asset is a business term for cash or an asset quickly converted into cash. 

For an asset to be considered liquid, it needs to meet a few key criteria:

• It must be in an established market (i.e., a market that is not unstable and doesn’t alter item value very much, unlike stocks or shares that can be unpredictable).

• It must have a large number of interested buyers (for example, it cannot be a niche product that will take a long time to sell, there must be demand for it.)

• The ownership of the asset must be transferred easily (unlike a house, for example, this process takes much longer for the asset to change hands).

Liquid assets are the most common asset that businesses hold because it includes the money they have in the bank.

Some examples of liquid assets are:

• Cash in the bank or physical money such as petty cash.
• Cash equivalents, like short-term bonds or savings accounts.
• Inventory (goods or raw materials that you could sell quickly for a cash value).
• Accounts receivable (the money customers owe you).
• Short-term investments that you can withdraw for cash at any time.

Current assets are similar to liquid assets in that they are assets you can convert into cold, hard cash within a short period of time. Cash in the bank is often counted as a current asset in financial documents, as there is not always a need to have a separate liquid asset total in your accounting.

A good rule of thumb to tell if the item of value is a current asset is you can convert it into cash within a matter of weeks. 

Fixed assets are not liquid items and will take months, if not longer, to sell and turn into their cash value. They are usually items you may use in your day-to-day operations and will be useful to your business for more than a year.

Examples of fixed assets include: 

• Vehicles (such as company cars)
• Office furniture and equipment such as laptops 
• Machinery or specialist tools
• Property
• Land
• Long-term investments

Another way of categorising assets is to look at tangible and intangible assets. Tangible assets are physical items that you can touch and are usually used as operational resources. Examples of tangible assets include stock/inventory, property, and equipment, some can be considered liquid, and some may not.

Intangible assets are not physical. In other words, they can’t be touched or held. They usually refer to things like things related to your brand like logos, names, or contracts. 

Intangible assets are split into 2 categories:

• Definite – Something that last for a certain amount of time, like a legal agreement, or a contract to do work for a client. 
• Indefinite – Something that is with your business forever, like its name. 

The monetary value of intangible assets aren’t always obvious, but they’re definitely valuable. Think about the names of companies like McDonald’s or Coca-cola. Their brand names hold incredible amounts of cash value because of how well recognised they are. 

Intangible assets can be created by a company internally, or they can be acquired from an outside source. It’s important to remember that intangible assets created internally won’t appear on a business’ balance sheet. 

The most common examples of intangible assets include:

• A copyrighted intellectual property – an original creation created by you or your company, like an image or book. 
• A registered trademark – like a logo or brand name.
• A registered patent – for any original inventions you use to make money.
• Domain names – any website names you own.
• Proprietary computer software – computer software that you’ve paid for the rights to use.
• A business’s goodwill – the value of your company’s public relations. For example, a dedicated customer base, good employee relations, or how your brand is perceived.  
• Trade secrets – something only you know, like KFC’s secret recipe. 
• Marketing campaigns developed in-house
• Your employees’ knowledge base

The most common way to figure out the total value of your intangible assets is to deduct the total book value of your business (your assets minus liabilities) from its market value. 

Because the book value accounts for all other assets, the leftover market value must be the value of your intangible assets.

Alternatively, you can value each intangible asset individually. It can be tricky, but there are a few ways you can do it. 

For example, you could estimate an asset’s value by:

• comparing it to other similar products on the market.
• measuring revenue that it generates.
• estimating what it would cost to pay another party to create something similar. 

This really only works with assets that directly produce income like patents, and other intellectual property. Measuring the value of a brand name, for example, is more difficult. 

Measuring the value of your intangible assets can be tricky, but measuring your cash flow shouldn’t be. That’s why thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.